Is consolidation in the Canadian wine world a good thing?

The announcement earlier this fall that Andrew Peller Limited was purchasing well-known and established British Columbia wineries Gray Monk, Black Hills and Tinhorn Creek for a combined $95 million created quite the stir in the Canadian wine industry.

The sale of any one of the wineries might not have caused a great deal of surprise as each, for various reasons, had been rumoured to be on the market. It should be clarified, though, that although the purchase was announced with a combined price, the wineries involved in the transactions are not related.

The Acquired

Gray Monk Estate Winery, located in Lake Country just north of Kelowna, was established in 1972 by George and Trudy Heiss and was one of the first BC wineries of the modern era. The couple introduced Pinot Gris to British Columbia and the variety is now the most widely planted white grape variety in the province.

Black Hills Estate Winery, located near Oliver in the southern Okanagan on the Black Sage Bench, is the maker of Nota Bene, which may be the most successful Bordeaux-style wine not just in BC, but in Canada. The ownership structure of the winery was a limited partnership, the most famous limited partner being actor Jason Priestley.

Tinhorn Creek Vineyards, located just south of Oliver on the Golden Mile Bench (the Okanagan’s only officially recognized sub-zone), was established in 1993 and owned approximately 150 acres of vineyard land.

Together, the three wineries generated approximately $25 million in annual sales and owned a combined 250 acres of vineyard land throughout the Okanagan.

The Purchaser

Andrew Peller Limited (APL) is an Ontario-based publicly traded company (we will come back to this) traded on the Toronto Stock Exchange. APL owns a number of wineries and brands, such as Peller Estates, Trius, Hillebrand, Wayne Gretzky, Thirty Bench, Calona, Copper Moon, Hochtaler and Domaine D’Or. Two of the better-known BC wineries that they owned [and still own? Or no longer own?] prior to the recent purchase are Sandhill and Red Rooster.

Why?

While the rationale for APL’s purchase appears relatively straightforward (and is expressly mentioned in the press release announcing the purchase), let’s explore the possible effects of the transaction.

APL indicated that it believes “there is significant opportunity for growth in the Okanagan wine region” and the purchase will “significantly strengthen our presence in the region.” The purchase also provides the wineries being purchased with greater resources and access to capital.

Consolidation occurs in all industries and the phenomenon is not new in the wine industry. It has occurred in Australia, the United States and in Canada with Vincor and then Constellation (although Constellation recently sold its Canadian wineries to the Ontario Teachers’ Pension Plan). Reasons for consolidation in the wine industry were explored by Harvard University Business School’s Michael Roberto in a paper published in the International Business & Economics Research Journal in February 2013. Beyond the obvious economic efficiencies that can result in sales, marketing, distribution and accumulative administration costs, Roberto suggests that demand has increased in the premium wine category and that wineries will acquire other wineries to gain entry to this market. This could very well apply to the APL purchase as Black Hills, in particular, is viewed as a premium wine producer.

Most often, and we have seen this particularly in the Australia and the United States, and in Canada with Vincor/Constellation, consolidation leads to homogenization. This is particularly dangerous in an industry that is still relatively young, small and lacking a critical mass of wineries that are confident and comfortable enough to make high-quality, terroir-based wines that reflect the BC vineyard sites where they are grown. Many wineries are still finding their way.

With the Canadian wine industry at the stage where it is just starting to get international recognition, continuing on the path to quality, diversity and wines that express a sense of place is more crucial now than at any point in our young industry’s history. Importantly, it is predominantly a few independents that are responsible for the quality evolution. Homogenization, as a result of consolidation, could potentially damage a reputation that is just now emerging on the global stage.

When Constellation acquired Robert Mondavi in the early part of this century, the words of John Shafer, founder of Napa’s Shafer Vineyards, in the October 20, 2004 issue of the Wine Spectator, should act as a sober reminder that “given the track record of smaller wineries that have been acquired by larger companies … History will tend to support the idea that quality will go down, not up.”

Too often when consolidation occurs, the result is spreadsheet wines — when viticulture and winemaking decisions are being made by accounting and marketing departments as opposed to winemakers — and the quality and identity of the wines suffer.

Significantly, the APL transaction results in a high percentage of BC’s wine production being controlled by Ontario-based companies who have interests across the country. The danger is that Canadian wines will be marketed generically, eroding the progress that BC wineries have made independently in creating wines with a local identity and sense of place and raising their image and profile.

We also must keep in mind that APL is a publicly traded company with a mindset of maximizing shareholder value — a concept often in contradiction with making great wine, which is often much more a labour of love. While it is possible to create quality wines with a sense of place AND make a profit, that’s not easy. By focussing on profit instead of quality and diversity, a likely effect will be that the mid- and lower tiers will be a battlefield, an acceleration of the race to the bottom, which is not good for the consumer or the industry.

Opportunities?

Because there will likely be an even greater glut at the low and mid-tier levels, it is imperative that independents focus on quality wines with a sense of place. There must also be clear distinctions made between the terms premium, quality and terroir-based.

“Premium” is generally used to refer to a higher price point. It is important to understand that price and quality are not necessarily inversely related. Quality can exist at all price points and higher priced wines are not always objectively better made.

We must also distinguish between “quality” and “terroir-based” wines. A wine can taste good, but it may have no sense of place. Rhys Pender, Master of Wine, educator and co-owner of Little Farm Winery in BC’s Similkameen Valley, emphasizes that the best way for BC wineries to stand out and distinguish themselves is to focus on the vineyard and expressing that site in the bottle — a wine that blends grapes from different regions or different sites loses its identity. For BC to continue to receive international recognition, producers must focus on quality wines that express the diversity of vineyard sites that exist in the province. Pender is emphatic that the need for the province to establish new sub-zones (in addition to the already established Golden Mile Bench) is even greater now and will assist in raising the quality, identity and profile of the BC wine industry.

BC consumers support their wine industry, but that can be a pro as well as a con. It’s important not to mistake popularity for quality.

The industry’s leaders, the ones responsible for the quality evolution must push to raise the bar even higher and make wines that represent where they are grown. That’s right, grown. Remember, wine is an agricultural product and should have a sense of place and tell a story about where it’s from.

Despite all the potential dangers inherent with consolidation, the ability to distinguish themselves among the masses is an opportunity that independent BC wineries must not pass up. Joe Shafer’s words are likely correct with respect to the corporate wineries, but consolidation could allow for independent BC wineries to soar.

Ultimately, the power lies with the consumer. We are all more and more concerned with where our food comes from. It’s time that concern also extended to the wines we drink. Support quality and diversity, eschew conformity and homogeneity and be proud to champion the wines that truly reflect and represent the Golden Mile, Black Sage, Naramata, Lake Country, Lillooet-Lytton, and on and on and on.

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Wine Editor for Quench Magazine, Gurvinder Bhatia left a career practising law to pursue
his passion for wine and food. He is the wine columnist for the Edmonton
Journal, wine columnist for Global TV Edmonton, a wine and food consultant
to numerous hotels and restaurants, and the owner of Vinomania, recently
named one of Canada’s 20 best wine stores. Gurvinder was also the wine
columnist for CBC Radio Edmonton for 11 years. Gurvinder is an
international wine judge having participated in prestigious competitions
including Concours Mondial de Bruxelles, VinItaly, Wines of Chile Awards,
Canadian Wine Awards, International Value Wine Awards, and The National Wine
Awards of Canada. He travels the world in pursuit of great quality wines
with a sense of place from producers who are passionate about their craft.
Gurvinder also leads intimate insider’s wine tours and is frequently asked
to speak on numerous wine and food related topics. He is actively involved
in the community and donates his time and resources to numerous charitable
causes and organizations. He is a past chair of MacEwan University’s Mad
Hatter’s Gala and currently sits as a Board member of the Edmonton Community
Foundation.